How high could silver go?

The last three months were sort of a roller coaster for precious metals investors — gold and silver hit a local bottom at the beginning of November and it looked like nothing could stop a strong rally to follow. Yet the fears concerning the “fiscal cliff” issue seem to have won and stopped the prices at the end of November. Moreover, gold and silver correlations structure that used to propel the rally got distorted and even though the dollar weakened and the general stock market got stronger, precious metals were unable to react.

As it turned out, the end of 2012 was not the end of the U.S. economy and the “fiscal cliff” was a mere scarecrow and not the doom of the financial markets. A rally began. Will it be the long-awaited rally that could bring precious metals to their new all-time high? There are no certainties in any market, but as the correlations seem to be returning to normal, it gets more and more likely. This is because precious metals are not the only assets that have gone up in price recently — the general stock market, in fact, seems to be doing even better and the dollar is in a downtrend.

To see what the markets themselves can tell us, let’s jump straight into today’s technical part — we’ll start with the general stock market, using S&P 500 Index as a proxy (charts courtesy by http://stockcharts.com.)

Click to enlarge.

Stocks closed above their 2012 high (on Thursday) last week, even when considering intra-day price levels. This is a bullish phenomenon, which is not yet confirmed. We prefer to wait and see that stocks close above this level next week as well, before saying that the breakout is completed, but the situation clearly is more bullish than not at this time.

It’s also more bullish than it was last week because back then we only had an unconfirmed breakout above the highest closing price of 2012. This week we have it confirmed and an additoinal, unconfirmed breakout.